"This is crazy" – a strategist explains why he has just reduced the risk by selling Apple, Microsoft and more

<pre><pre>"This is crazy" - a strategist explains why he has just reduced the risk by selling Apple, Microsoft and more

What happens on the stock market when price acceleration accelerates vertically and complacency of investors reaches an extreme level? Typically bad things, says Lance Roberts, chief investment strategist at RIA Advisors.

And we are here now.

"This is crazy," his team said on Friday as they tried to wrap their heads around the next task. This, explains Roberts, has prompted him to reevaluate the overall portfolio risk for his clients in the face of a bull market that continues to decline.

so what is crazy, exactly? Now, as Roberts sees it, the "overbought, expanded and smug market" is approaching a settlement day and he used a tandem of graphs to illustrate the abundance.

First, this graph shows “the almost vertical price acceleration”, which is indicative of the type of merger that takes place towards the end of the cycle. He also pointed out that when markets get more than two standard deviations from their long-term moving average, stocks tend to reverse shortly afterwards.

Both factors play a role here:

Added to this is the put / call ratio, which indicates the number of put options bought on the S&P 500

SPX, -0.29%

Compared to the number of call options, the company has now reached a historical level and shows an increasing willingness to take risks.

"While none of this means the market is going to collapse," Roberts said, "it suggests that the risk-reward ratio is not in the short-term favor of the bulls."

He agrees with Doug Kass, who recently alarmed customers with his threatening prospects.

"It is becoming increasingly clear to me that global equity markets are taking a speculative step (driven by global liquidity) that can even be compared to the progress that culminated in the pioneering market peaks of 2000 in autumn 1987 and spring," said Kass ,

Nevertheless, according to Roberts, investors panic about missing out (FOMO) and increase their risk, even though every valuation measure is at an extreme level. "Yes, that's crazy. That's why we took profits from the portfolios," he said.

In particular, Roberts raised cash by selling Apple shares

AAPL, + 0.23%


MSFT, -0.46%

, United Healthcare

UNH, + 0.31%

, Johnson & Johnson

JNJ, -0.23%

and Micron

MU, -1.12%

and reducing overweight positions in various ETF sector games such as the Technology Select Sector SPDR

XLK, -0.23%

and the Health Care Select Sector SPDR

XLV, + 0.03%


While the markets may see a short-term surge due to the Fed's continued liquidity injections, the earnings for 2020 could be targeted for investors from the start, ”Roberts concluded. "Taking profits now and reducing risk can lead to portfolio underperformance in the short term, but you will likely appreciate the reduced volatility when and when current optimism wears off."

Part of this optimism eased on Friday with the Dow

DJIA, -0.46%

three digits and the Nasdaq

COMP, -0.27%

and S & P also in the red.